301342 Flashcards
All of the following are acceptable when not-for-profit (NFP) entities accept unconditional promises to give except:
NFPs may use the fair value at the date a promise to give securities was initially recognized even if the contribution will not take place for several years.
when promises to give cash are initially recognized, an expense for estimated uncollectible promises should be recorded.
when promises to give cash are initially recognized, the amount recognized should exclude amounts expected to be uncollectible.
when promises to give cash are initially recognized, the amount recorded could be based on the present value of estimated future cash flows.
when promises to give cash are initially recognized, an expense for estimated uncollectible promises should be recorded.
NFPs should not record an expense for estimated uncollectible promises when promises to give are initially recognized. The other three treatments are proper.
FASB ASC 958-605-30-8 allows NFPs to use the fair value at the date a promise to give securities was initially recognized even if the contribution will not take place for several years. When promises to give cash are initially recognized, they could be based on the present value of estimated future cash flows (FASB ASC 958-605-55-22).
When NFPs recognize promises to give, they create an Allowance for Uncollectible Promises (or Contributions) but do not recognize Bad Debt Expense as a business does. Instead, the NFP recognizes the net realizable value of the contribution revenue (FASB ASC 958-605-30-4).
Fair Value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date.
Not-for-Profit Entity
According to the FASB ASC Glossary, a not-for-profit entity is distinguished from a business entity by three characteristics: contribution of significant resources from providers who do not expect proportionate return, operating purposes other than to provide goods or services for profit, and absence of ownership interests like business enterprises. In addition, the IRS stipulates that no part of the organization’s net earnings can inure for the benefit of any specific person or persons.
FASB ASC Glossary
IRS Form 1023
AICPA Audit and Accounting Guide Not-for-Profit Entities, Section 15.09
2121.01
see study guide
2122.06
The classification of contributions received as revenues or gains depends on whether the transactions are part of the NFP’s (not-for-profit entity’s) ongoing major or central activities (revenues), or are peripheral or incidental to the NFP (gains).
2122.07
Contribution revenues (support) from gifts, grants, bequests, etc. are reported in the period they are unconditionally promised or received, whichever is earlier. Recognition of contribution revenues is not deferred because donations are restricted. Revenues are measured at the present value (or net realizable value for any contributions expected to be received within a year after the unconditional promise was made).
2122.08
The statement of activities needs to indicate whether contributions received are restricted by donor stipulations or are unrestricted.
Donor-restricted contributions are reported as restricted revenues or gains (restricted support), which increase net assets with donor restrictions. However, donor-restricted contributions whose restrictions are met in the same reporting period may be reported as unrestricted support in net assets without donor restrictions provided that a not-for-profit has a similar policy for reporting investment gains and income, reports consistently from period to period, and discloses its accounting policy.
In the absence of a donor’s explicit stipulation or circumstances surrounding the receipt of a contribution that make clear the donor’s implicit restriction on use, the placed-in-service approach must be used to report expirations of restrictions on gifts of cash or other assets to be used to acquire or construct a long-lived asset. The over-time approach is no longer allowed.
FASB ASC 958-605-30-4, 30-8
FASB ASC 958-605-55-22
